MUKUL MUDGAL, J. -
(1.) This Company Appeal is directed against the orders dated 17th July 2004, 27th July 2004 and 30th July 2004 passed by the Learned Company Judge by which the Learned Company Judge dismissed the application of the appellant company, M/S Bakemans Industries Private Limited and accepted the bid of the respondent No. 4, Ceylon Biscuits Limited. The respondent no. 1 is the New Cawnpore Floor Mills Pvt. Ltd., the Respondent No. 2 is the State Industrial and Investment Corporation of Maharashtra (hereinafter referred to as the SICOM) and the respondent no. 3 is the Official Liquidator, Govt. of India, Ministry of Finance and Company Affairs.
(2.) The brief facts of the case are as follows:
a) One NRI Lead Bank which purported to be a financier of the appellant company M/S Bakemans Industries Limited had obtained an award against the appellant company. In order to enforce that award, Execution Petition No.288/2003 was filed. The respondent no. 2, SICOM was the judgment debtor No.3 in the said execution proceedings. Before the said arbitral proceedings were initiated by the NRI lead Bank, the respondent No. 2 SICOM Ltd. exercising its powers under Section 29 of the State Financial Corporation Act, 1951 (hereinafter referred to as the SFC Act) had taken over the assets, namely, building, plant and machinery etc. of the respondent company and in the arbitral award it was directed that the possession thereof should be handed back to the respondent company. Section 29 of the SFC Act reads as follows:
"29. Rights of Financial Corporation in case of default " (1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof (or in meeting its obligations in relation to any guarantee given by the Corporation) or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the (right to take over the management or possession or both of the industrial concern) as well as the (right to transfer by way of lease or sale) and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred (as if the transfer) had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) (Where any action had been taken against an industrial concern) under the provisions of sub-section (1), all costs, (charges and expenses which in the opinion of the Financial Corporation have been properly incurred) by it (as incidental thereto) shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.)
(5) (Where the Financial Corporation has taken any action against an industrial concern) under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of (the concern)."
b) As the respondent no. 2, SICOM wanted to go ahead with the sale of the unit and it was objected to by NRI Lead Bank as well as the appellant, this Court in execution proceedings passed orders from time to time. It would be appropriate to refer to some of these orders. On 16th March 2004 the execution petition came up for hearing before a learned Single Judge of this court on the original side. After hearing the submissions of the parties, the executing Court gave a green signal for the sale of the properties. The relevant portion of the said order reads as under:
"However, in my considered opinion there cannot be any impediment in exercising the powers of selling the property through public auction in a transparent manner in an open court instead of allowing the judgment debtor No.3 to sell the property at its end without any supervision of the Court. Since the court will be supervising the sale to find out the best suitable bid, I find no ground to stay the proceedings, which is initiated by this Court." On the said date the Court also noted that some bids had been received pursuant to orders passed earlier. These bids were from three parties. In addition, M/s Ceylon Biscuits Ltd., which was also represented through counsel, showed its willingness to submit the bid and was allowed to do so in order to have a better and a higher offer. One week's time was given to them to submit the bid. By the same order, the appellant company was also given a chance to obtain other/better offers from any other bidder and it was made clear that in all the offers/bids, which were to be submitted by any other bidder, the bidder shall have to comply with the formalities and terms that had been advertised on 23rd February 2004
(c) The matter was again taken up on 24th March 2004 when the Court found that M/s Ceylon Biscuits Ltd. had made an offer of Rs.12.5 crores and had deposited the earnest money of Rs.25 lacs in dollars. There was another bidder, namely, M/s Longulf Trading (India) Pvt. Ltd. which had submitted the bid of Rs.11.7 crores. The three bids submitted earlier, note of which was taken in the order dated 16th March 2004, had given the bid of Rs.2 crores, 8 crores and 4.5 crores respectively. The bid of M/s Ceylon Biscuits Ltd. was, therefore, the highest. However, before this bid could be accepted it was pointed out by learned counsel for the appellant company that the valuation of the plant and machinery as well as land and building would be much higher than the one shown in the valuation report at Rs.8,42,43,000/-. In view of this dispute about the valuation raised by the appellant company, the court directed the respondent no. 2 SICOM Ltd. to get the entire assets re-evaluated by appointing an approved valuer and submit a report to the Court before the next date. It was also directed that the necessary papers of the plant and the machinery and other connected records shall be produced by the appellant before the approved valuer in order to assist him in evaluating the property in question. It was also clarified that it would be open to the approved valuer to collect information in respect of various assets from other sources as well such as the customs authorities, Director General Foreign Trade and such like authorities. The valuer was also directed to give separate valuation report for the un-installed plant and machinery, if any, so as to enable this Court to ascertain the break- up value of various plants and machineries to facilitate the process of sale by the Court.
d) The matter was thereafter taken up on 5th April 2004, when the valuation report was placed before the Court as per which the total value of the entire assets of the company were shown as approximately Rs.10 crores. In view of the fresh valuation report, which was available with the Court, it was deemed proper to give another opportunity to all the five bidders to submit their fresh bids making it clear that the same could be submitted on or before 12th April 2004 and they would also be allowed to participate in the inter se bidding, if any, held amongst the parties on the next date. The matter was consequently adjourned to 19th April 2004
e) Before the execution application could be taken by the executing Court on 19th April 2004 a significant development took place in CP 204/2003. As many as 15 company petitions were filed under Section 433 (e) and (f) read with Sections 434 and 439 of the Companies Act for winding up of the respondent company which came up for hearing on 6th April, 2004 Section 433(e) and (f) and Sections 434 and 439 of the Companies Act read as follows:
"433. Circumstances in which company may be wound up by Tribunal. A company may be wound up by the Tribunal,- (e) if the company is unable to pay its debts; (f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up; Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government]
434. Company when deemed unable to pay its debts. (1) A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding [one lakh rupees] then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order of [any Court or Tribunal] in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the [Tribunal] that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the [Tribunal] shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm." Section 439. Provisions as to applications for winding up. (1) An application to the Court for the winding up of a company shall be by petition presented, subject to the provisions of this Section, - (a) by the company; or (b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or (c) by any contributory or contributories; or (d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately; or (e) by the Registrar; or (f) in a case falling under section 243, by any person authorised by the Central Government in that behalf. (2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustees for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of sub-section(1).
(3) A contributory shall be entitled to present a petition for winding up a company, notwithstanding that he may be the holder of fully paid-up shares, or that the company may have no assets at all, or may have no surplus assets left for distribution among the shareholders after the satisfaction of its liabilities.
(4) A contributory shall not be entitled to present a petition for winding up a company unless- (a) either the number of members is reduced, in the case of a public company, below seven, and, in the case of a private company, below two; or (b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder.
(5) Except, in the case where he is authorised in pursuance of Clause (f) of sub-section (1), the Registrar shall be entitled to present a petition for winding up a company only on the grounds specified in [clauses (b), (c), (d), (e) and (f)] of Section 433: Provided that the Registrar shall not present a petition on the ground specified in clause (e) aforesaid, unless it appears to him either from the financial condition, of the company as disclosed in its balance sheet or from the report of [a special auditor appointed under section 233A or an inspector] appointed under section 235 or 237, that the company is unable to pay its debts: Provided further that the Registrar shall obtain the previous sanction of the Central Government to the presentation of the petition on any of the grounds aforesaid.
(6) The Central Government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any.
(7) A petition for winding up a company on the ground specified in clause (b) of section 433 shall not be presented - (a) except by the Registrar or by a contributory; or (b) before the expiration of fourteen days after the last day on which the statutory meeting referred to in clause (b) aforesaid ought to have been held.
(8) Before a petition for winding up a company presented by a contingent or prospective creditor is admitted, the leaves of the Court shall be obtained for the admission of the petition and such leave shall not be granted - (a) unless, in the opinion of the Court, there is a prima facie case for winding up the company; and (b) until such security for costs has been given as the Court thinks reasonable. After hearing the parties, the following order was passed on 6th April 2004: "From the averments made in the petition, accompanying documents and the supporting affidavit, show that the respondent company is unable to pay its debts. Petition is admitted. Citation be issued in "Economic Times" (English) and "Navbharat Times" (Hindi) and in Delhi Gazette for the next date of hearing. Looking into the nature of allegations, and particularly the conduct of the Respondent, Official Liquidator, attached to this Court is appointed as Provisional Liquidator, who shall take over the assets, properties and books of accounts of the Respondent Company at the earliest. Ex-Directors of the Respondent company are directed to appear in the Office of O.I. on 10.5.2004 at 11:00 am and file the statement of affairs of the company."
f) The company petition was thus admitted and citations were directed to be published in the newspapers and the Court also appointed an Official Liquidator attached to this Court as the Provisional Liquidator. g) On coming to know of the aforesaid order, the respondent no. 2, SICOM Ltd. moved CA 414/2004 in the company petition. Notice in the said application was issued returnable on 31st August 2004 In the said application, the respondent No. 2 SICOM Ltd. prayed for a stay of the application of the order dated 6th April 2004 appointing the Provisional Liquidator and directing him to take over the assets, properties and books of accounts of the appellant company. It was pleaded that the respondent no.2 SICOM Ltd. being a secured creditor was in possession of the unit of Bakemans Industries Pvt. Ltd. situated at Patiala and, therefore, the same should not be disturbed and the Provisional Liquidator be directed not to take possession of the unit from the respondent no.2, SICOM Ltd. The order was thereafter passed to the effect that possession of the respondent no.2, SICOM Ltd. of the factory and plant and machinery etc. shall not be disturbed.
h) When the execution application came up for hearing on 19th April 2004, the executing court was informed about the aforesaid developments in the company petition. The execution petition, in these circumstances, was transferred to the company Court. However, while transferring the execution petition in the order dated 19th April 2004 the Court made certain observations which are as follows:
"It is an admitted position that M/s SICOM exercised the powers under section 29 of the State Financial Corporation Act and took over possession of the factory premises of M/s Bakemans Industries Pvt. Ltd. and they continue to be in possession of the said premises. In order to recover the debts as owed to M/s SICOM and other creditors by M/s Bakemans Industries Pvt. Ltd., the process of sale was initiated by this court. In view of the aforesaid order now passed by the learned Company Judge and since the Official Liquidator has been appointed as the Provisional Liquidator it will be necessary and appropriate to order for placing this matter also before the Hon'ble Company Judge to continue further proceedings in this case also. The matter, accordingly, is transferred to the learned Company Judge to continue the further proceedings and to pass appropriate orders in accordance with law. At this stage, counsel appearing for M/s SICOM states that the power and right of M/s SICOM under Section 29 of the State Financial Corporation Act is an independent right which could be exercised by the said financial institution without any reference to the provisions of the Companies Act which is also so held in the decision of the Supreme Court in International Coach Builders Ltd. v. Karnataka State Financial Corporation, (2003) 10 SCC 482. In this regard, reference may be made to paragraph 32 of the said judgment which states as follows:
"We therefore, hold as under: 1. The right unilaterally exercisable under Section 29 of the SFC Act is available against a debtor, if a company, only so long as there is no order of winding up. 2. SFCs cannot unilaterally act to realise the mortgaged properties without the consent of the official liquidator representing workmen for the pari passu charge in their favour under the proviso to Section 529 of the Companies Act, 1956. 3. If the official liquidator does not consent, SFCs have to move the company Court for appropriate directions to the official liquidator who is the pari passu charge holder on behalf of the workmen. In any event, the official liquidator cannot act without seeking directions from the Company Court and under its supervision."
Right of financial corporation in respect of the factory premises shall be guided by Section 29 of the State Financial Corporation Act read with decision of the Supreme Court in International Coach Builders Ltd. (supra)".
(i) When the matter was listed before the learned Company Judge, the counsel for the respondent no.2 SICOM requested the Company Judge to allow them to proceed with the auction. This was, however, not allowed by the learned Company Judge and the case was adjourned to 28th July, 2004
(j) The appellant company served a notice on the respondents dated 1st July, 2004 in which it was stated that the appellant-Company has learnt that the respondent no.2, SICOM intended to sell the properties without seeking permission from the Court and without notice to the parties and to the Custom's Department who had been served a notice by the court. Further, even the Official Liquidator served a notice on the respondent no.2, SICOM informing it not to take any action without their permission.
(k) In its reply to the notice of the appellant dated 1st July, 2004, the respondent no.2 SICOM made no mention of any process of sale having been initiated. On the contrary, it was stated that the respondent no.2 SICOM possessed all the rights to sell the property.
(l) The appellant company moved an application under Rule 9 of the Company Court Rules wherein the appellant prayed for maintenance of status quo and not allowing any action to be taken by the respondent no.2 SICOM. The said application was disposed of by the learned Company Judge by an order dated 17th July, 2004 Rule 9 of the Company Court Rules reads as follows: "Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court."
(m) On 27th July, 2004 the learned Company Judge granted one more opportunity to the appellant company to bring any other bidder and adjourned the matter to 5th August, 2004 but on 27th July, 2004 the counsel for the appellant received a letter from Sh. Rajiv Shakdhar, Advocate, informing the counsel for the appellant that the matter was mentioned by the counsel for Ceylon Biscuits Ltd. purported to be the highest bidder and the matter had been listed for directions on 28th July, 2004
(n) On 28th July, 2004 the learned Company Judge was informed that the buyer and the Director of the Company who were present in the Court had gone out of station to finalize the deals. The Court directed the matter to be listed on 30th July, 2004
(o) On 30th July, 2004 the affidavit of the Managing Director of the appellant was filed in this Court at about 4.00 p.m. The proxy counsel requested the court that the counsel had gone out of the Court for some personal work and the matter should be taken on 5th August, 2004 but the learned Company Judge called for the affidavit filed in the Registry, heard the matter and passed the impugned order by which he accepted the bid of Ceylon Biscuits Ltd. It is against this order dated 30th July 2004 and the orders dated 17th July 2004 and 27th July 2004 passed by the learned Company Judge that the present appeal has been filed before this Court.
(3.) The learned Senior Counsel for the appellant, Sh. P.V. Kapur submitted as follows:-
(a) The sale under Section 29 of the SFC Act by the respondent no.2 SICOM was illegal and erroneous because when the sale was made the appellant company was in liquidation and the Official Liquidator was appointed as the Provisional Liquidator making his involvement mandatory. The Official Liquidator was not involved in the entire process of sale, a fact that has been admitted by the counsel for the Official Liquidator during the course of hearing on 22nd February, 2000. Mr. Luthra, the learned counsel made a statement that the OL had never been involved in the process and that the OL would support a fresh auction which may be carried out. Thus, the non involvement of the Official Liquidator is against the position of law laid down by the Hon'ble Supreme Court in the following cases: i) Rajasthan Financial Corporation vs. Official Liquidator (2005) 8 SCALE 255 Thus, on the authorities what emerges is that once a winding up proceeding has commenced and the liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the company court. The right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the Court which has been approached under Section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by Page 1045 the requirement of the Official Liquidator being associated with it, giving the company court the right to ensure that the distribution of the assets in terms of Section 529A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion, any proceeding under the SFC Act. What we have is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the company court for permission to stand outside the winding up and to sell the properties of the company-in-liquidation. The company court has rightly directed that the sale be held in association with the Official Liquidator representing the workmen and that the proceeds will be held by the Official Liquidator until they are distributed in terms of Section 529A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank v. Canara Bank and Anr. (supra) and in International Coach Builders Limited v. Karnataka State Financial Corporation (supra) in respect of the applicability of Sections 529 and 529A of the Companies Act in the matter of distribution among the creditors. The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up, is different from the distribution of the proceeds of the sale of the security and the distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of Section 529A read with Section 529 of the Companies Act. After all, the liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the company court. In other words, the distribution of the sale proceeds under the direction of the company court is his responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the company court, that a proper price is fetched for the assets of the company in liquidation. It was in that context that the rights of the Official Liquidator were discussed in International Coach Builders Limited (supra). The Debt Recovery Tribunal and the District court entertaining an application under Section 31 of the SFC Act should issue notice to the liquidator and hear him before ordering a sale, as the representative of the creditors in general.
ii)International Coach Builders Ltd. v. Karnataka State Financial Corpn. (2003) 10 SCC 482 "22. Since the Official Liquidator is in the position of a co-mortgagee, the SFCs cannot act independently or by ignoring him for enforcing the security. It is established law that in case of co-mortgagees, all of them should join in the suit for enforcing the security, but if some of them refuse to join, they have to be included as defendants, not merely as performa parties, but as necessary parties inasmuch as the mortgage right vests in them along with the plaintiffs- mortgagees. (See in this connection the judgment of the Privy Council in Sunitibala Debi v. Dharae Sundari Debi, [ AIR 1919 PC 24]. The same principle would be substantially true and applicable in the case of a mortgagee and a pari passu charge-holder over the same security for realising the security. The realization of the security can only be done by both the charge-holders joining and realising the security simultaneously. If a sale takes place, it can only be simultaneously for recovery of the claim of all pari passu charge-holders and sale proceeds are required to be divided proportionately in the same proportion as their dues."
(b) The learned Company Judge, by not following the guidelines regarding the procedure to be adopted while conducting the public auction and accepting the sale of property as contemplated by respondent no.2 SICOM under Section 29 has acted contrary to the mandate of the Supreme Court. The respondent no.2 SICOM deliberately published smallest possible advertisement with limited circulation without giving the reserve price and other details of the property. Further, the reserve price was conspicuously absent in the advertisement which is mandatory as per the position of law as laid down by the Supreme Court, since the non fixing of the reserve price detracts the prospective buyers from buying the property.
(c) The advertisement published by the respondent no.2 SICOM should have been in the format provided to this Hon'ble Court during the course of the arguments. The size of the advertisement provided in the leading newspaper like Times of India is eight times the size of the advertisement published in the present case. The latest advertisement given by the OL in another case clearly mentions the minute description of the property, the reserved price, date of instruction, earnest money etc.
(d) The learned Company Judge was not justified in rejecting the valuation report filed by the appellant company and accepting the valuation of NITCON which conducted the valuation at the instance of the respondent no.2, SICOM. The difference between the two valuations was more than 60 crores. Further, the valuation which was done at the instance of M/s. Ceylon Biscuits Pvt. Ltd., the auction purchaser also shows that the value of the property was worth about 77 crores, a fact which has not been denied by M/s. Ceylon Biscuits Pvt. Ltd.
(e) The learned Company Judge has overlooked the orders passed by the Execution Court dated 23rd April, 2004, 5th April, 2004 and 19th April, 2004 wherein it was specifically mentioned that a fresh valuation be done by an independent valuer, fresh bids were to be called and then inter se bidding to be done between the bidders. The intention of the execution court in getting the fresh valuation done by the independent valuer by the aforesaid orders was defeated when the respondent no.2, SICOM got the property revalued from the same valuer i.e. NITCON. Since NITCON could not have given a higher valuation than already given as it would have affected their credibility since their first valuation was as low as Rs. 8.65 crores.
(f) The failure on the part of the appellant not to bring a higher bidder cannot be accepted as a reason for accepting a grossly undervalued bid of one of the bidders. The existence of three different valuation reports ranging from Rs. 10-80 crores obtained from three different parties clearly establish that the valuation of the property done by the respondent no.2, SICOM Ltd. is not correct and proper. Even if the Circle rates of the concerned area is taken into account, the value of the land alone would be much more than 12.5 crores, i.e. the price at which the whole property (land, building, plant and machinery) was sold.
(g) The learned Company Judge on 17th July, 2004 ought to have re- auctioned the property after getting fresh valuation done through the Official Liquidator for fixing up the reserve price. The learned Company Judge should have got the property re-auctioned as per the law laid down by the Hon'ble Supreme Court in Rajasthan Financial Corporation vs. Official Liquidator (supra).
(h) The learned Company Court erred in not appointing an independent valuer since there were conflicting valuation reports of different values.
(i) The learned Company Judge overlooked the conspiracy between the respondent no.2, SICOM and Ceylon Biscuits. M/s. Ceylon Biscuits was introduced by the appellant company after the execution of the memorandum of understanding for taking over the entire unit of the company including all the liabilities.
(j) As per the position of law laid down by the Hon'ble Supreme Court in the case of the Union bank of India v. Official Liquidator H.C. of Calcutta and Others (2000) 5 SCC 274 the court is under an obligation to act in the interest of the creditors and in Allahabad Bank and Others v. Bengal Paper Mills Co. Ltd. (1999) 4 SCC 383, it was held that fixing of the reserve price by the Court was mandatory.
i) In Union bank of India v. Official Liquidator H.C. of Calcutta (supra) the Hon'ble Supreme Court held as follows: "10. At the outset, we would state that in proceedings for winding up of the Company under liquidator, the Court acts as a custodian for the interest of the company and the creditors. Therefore, before sanctioning the sale of its assets, the Court is required to exercise judicial discretion to see that properties are sold at a reasonable price. For deciding what would be reasonable price, valuation report of an expert is must. Not only that, it is the duty of the Court to disclose the said valuation report to the secured creditors and other interested persons including the offerers. Further, it is the duty of the Court to apply its mind to the valuation report for verifying whether the report indicates reasonable market value of the property to be auctioned even if objections are not raised." ii) In Allahabad Bank and Others v. Bengal Paper Mills Co. Ltd. (supra), the Hon'ble Supreme Court held as follows:
"13.It is to be noted that no reserve price for the sale was fixed. Why this should have been so is not understood, particularly having regard to the fact that a valuer had been appointed of the assets and properties and a report obtained. The valuation report was not disclosed. The order of the learned Single Judge does not set out what the valuation of the property that was sold was. It does not even state that, in view of that valuation, the offer of Rs. 2 crores made by the second respondent was a fair and adequate price. Further, the learned Single Judge did not notice what the Division Bench did, namely, 'The Company had 15.2.73 acres of leasehold land. This was not taken into consideration by the valuer on the ground that the lease period was only upto 14th October, 1992. The valuer has not indicated whether he had examined the lease deed or whether there was any renewal Clause in the lease agreement'. The valuation was, therefore, itself suspect. 22. In Navalkha and Sons v. Sri Ramanya Das and Ors. AIR 1970 SC 2037 this Court quoted Rule 273 of Companies (Court) Rules, 1959, thus : Procedure at sale. - Every sale shall be held by the Official Liquidator, or, if the Judge shall so direct, by an agent or an auctioneer approved by the Court, and subject to such terms and conditions, if any, as may be approved by the Court, All sales shall be made by public auction or by inviting sealed tenders or in such manner as the Judge may direct. It then said : 'The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offerer does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the Court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sale would not be proper exercise of judicial discretion. In Gordhan Das Chuni Lal v. T. Sriman Kanthimathinatha Pillai, AIR (1921) Mad. 286, it was observed that where the property is authorised to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed is the best that could be expected to be offered. That is because the Court is the custodian of the interests of the Company and its creditors and the sanction of the Court required under the Companies Act has to be exercised with judicial discretion regard being had to the interests of the Company and its creditors as well. This principle was followed in Rathnaswami Pillai v. Sadapathi Pillai AIR (1925) Mad. 318, and S. Soundarajan v. Roshan and Co. AIR (1940) Mad. 42. In A. Subbaraya Mudaliar v. K. Sundarajan " AIR 1951 Mad 986 it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud.";